'Trust me' – Hayes regularly promised payment for brokers' help

London's Southwark Crown Court hears how Tom Hayes organised 14 wash trades for his brokers between 2008 and 2009, as reward for influencing Libor submitters at other banks.

Wash trades: a series of deals were designed solely to earn broker fees

In order to reward his brokers, ex-UBS and Citigroup trader Tom Hayes put through a total of 14 wash trades between September 2008 and August 2009, a London court heard today (June 16).

Hayes, on trial for the alleged rigging of the London interbank offered rate (Libor), orchestrated the trades solely to generate income for his brokers who would in turn approach their contacts at other Libor panel banks and persuade them to move their submissions higher or lower, the jury was told.

The prosecution has said the arrangement was based on a "you scratch my back and I'll scratch yours" mentality.

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Over the past two days the court has listened to transcripts of chat messages and phone calls mapping out numerous sequences of events that ultimately led to Hayes rewarding the brokers, who cannot be named for legal reasons. Hayes was quite open that the moves he requested would benefit his trading book.

In May 29, 2009 Hayes told a broker: "If you get [six-month Libor] up when it comes to the turn ... I will fucking reward you." Later in the conversation, he said: "low 3s [three-month Libor rates], low 1s, high 6s. That's your part of the bargain."

On July 2, 2009, he said to another broker: "Look, I don't want moaning. I want a high six-month [Libor] ... if you manage that you will see the benefits, trust me."

The trial has now entered its fourth week and is expected to continue for another six to eight weeks.

The prosecution is arguing that between 2006 and 2010 Hayes conspired with a number of traders and brokers to rig the benchmark interest rate to the ultimate benefit of his trading book and at the expense of counterparties. He faces eight counts of conspiracy to defraud and has pleaded not guilty to the charges. When Hayes was first interviewed by the Serious Fraud Office in 2013, he said that influencing Libor was "widespread" and predated his arrival at UBS in 2006.

One transcript showed Hayes assuring one of his brokers of payment by organising a date for the next "cross up", or wash trade: "I need you to keep being a hero," he said.

The court was shown an example of a wash trade where a broker earned £35,000 in fees. After this particular instance, the broker's colleague was in touch with him via instant chat to say: "Holy shit! ... How did you do that?"

The first broker responded: "You don't want to know", adding that he was expecting there to be another trade soon. He began to explain more about the arrangement but was cut off by his colleague, who said: "You're right ... I don't want to know."

Last Friday, the court heard that Hayes first thought of using wash trades as "bribes" for the brokers in September 2008. He faced some initial difficulty securing counterparties for the trades due to the collapse of Lehman Brothers and the consequent caution in much of the financial industry. But through a broker, he came to an agreement with Neil Danziger, then a trader at Royal Bank of Scotland, the prosecution said.

The jury has since heard of several occasions where Hayes and Danziger – almost on a monthly basis – would put through two mirror transactions that effectively cancelled each other out. Wash trades, as they are called, carry virtually no risks or benefits to the financial institution involved – and their main purpose is to generate money for brokers via brokerage fees.

After several wash trades had taken place – one of which was worth ¥200 billion ($1.6 billion) – Danziger began to set limits on the amount due to be "transacted". The jury was told of one occasion where the broker tasked with arranging the seventh wash trade had to report back to Hayes that Danziger would only trade ¥80 billion, quoting Danziger as saying "Mate, it's getting dodgier and dodgier".

On another occasion Hayes wanted to do a ¥150 billion wash trade, but the broker again had to come back to Hayes to say "he can only do 60 ... I know you wanted to do more."

The trial continues.